For those who are self-employed and wanting to buy a Flower Mound home, getting a mortgage can be a bit tougher than for those who work for an employer. The biggest reason for this is that self-employed borrowers often report a lower credit score, often below 680. While it’s true that self-employed individuals generally make more money, there are a few key factors you should focus on when trying to get a home loan.
As reputable Flower Mound real estate agents, we want to share these factors with you so that you have a better chance of being approved for a loan.
Credit score. We already mentioned this, but it’s still a factor. Credit scores above 700 are best, and the rate you get will be affected by how high or low your score is.
Property type. For lenders, single family homes pose the least risk. Condos and multi-unit properties are risky for lenders because of factors such as the financial health of homeowners associations, whether multi-unit properties will fill up, etc.
Occupancy. If you are wanting a mortgage for your primary residence, the lender assumes less risk. Rental properties and second homes are bigger risk for lenders, so keep this in mind.
Loan amount. Loans of more than $417,000 are frequently kept on the bank’s balance sheet, while those below this amount are usually sold to Fannie Mae and Freddie Mac. This means that because loan factors must fit FMFM parameters, lenders are generally less likely to make a big exception on this type of loan.
DTI, or debt-to-income ratio. Lenders calculate your debt-to-income ratio by using your most recent business and personal tax returns along with year-to-date expenses and income to determine your average net income. While DTI can be as high as 43%, a lower number can be a factor in getting exceptions in other areas. Be sure to work with a loan officer who’s skilled in analyzing your business financial statements and tax returns.
Loan-to-value ratio. In regards to the value of the home you want to purchase, how much of a loan are you requesting? The loan-to-value ratio is a percentage relevant to the home’s value. A low ratio is important, which means you will need a larger down payment on the home if you need exceptions in other areas.
While it seems unusual that those who are self-employed often have a more difficult time getting a mortgage considering the fact that most make about 80% more income than other borrowers, it is a fact according to studies performed by Zillow. Hopefully the information above will help you get your loan approved!
At Team Nelson, our Flower Mound realtors are dedicated to helping you buy the home of your dreams, whether you’re self-employed or work for an employer. Give us a call today for more tips and guidance!